Financial Modeling

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1. AOI [5] Before the Truth in Lending Act, auto dealers used to use a trick called add on interest. Suppose you bought a $30,000 car and financed it over 5 years at 6% interest. To calculate your payment, they’d take $30,000x5yearsx.06=$9,000. Your monthly payment would be ($30,000+$9,000)/12x5years = $650 per month. Write a spreadsheet that allows the user to enter the amount borrowed, the life of loan in years and the annual interest rate. The spreadsheet calculates the add-on interest payment, what the payment should be if calculated correctly, and the effective annual interest rate on the loan if the add-on interest payment is used.

2. WEEK [5] For any loan, loan length (up to 30 years) and interest rate, the spreadsheet calculates monthly payment in the ordinary fashion. Then, the borrower makes ½ a monthly payment every two weeks. (Assume bi-weekly compounding at a rate of r/26). Write a spreadsheet that determines how long it takes to pay off the loan in years.